FIVE DAYS; On Edge Over Terrorist Plots and Oil Supply

By Mark A. Stein

Published: August 12, 2006

RENEWED concern about terrorist strikes and a spike in energy prices threatened to flatten airlines, just as they had pulled themselves off the canvas and staggered back to profitability.

The British authorities arrested 24 men and accused them of planning to use liquid bombs in a coordinated attack against as many as 10 flights over the Atlantic. The arrests set in motion a global security crackdown that led to the cancellation of thousands of flights and threatened to discourage travel by plane.

The news scared investors already on edge about the economy and a spreading scandal over the timing of stock options that some executives granted to themselves, though markets quickly shrugged off concern about terror attacks.

TAKING A PAUSE -- The Federal Reserve left its benchmark interest rates steady at its policy-setting meeting, ending a string of 17 consecutive rate increases over the last two years. But it said increases could resume if inflation did not abate.

For now, the Fed said ''inflation pressures seem likely to moderate over time,'' so it left its federal funds target rate at 5.25 percent. That rate sets the cost of overnight loans among banks, and indirectly influences the prime rate and other loan rates.

Even a pause in the upward march of interest rates should help the economy, but stocks fell after the announcement because many investors had anticipated steady rates now and were looking for signs of lower borrowing costs in the future. The Fed, though, is balancing signs of a slowing economy with accelerating inflation.

Producer inflation numbers for July will be released on Monday; consumer inflation numbers will come on Tuesday.

OIL SCARE -- After finding ''unexpectedly severe corrosion'' in a pipeline, BP said it would shut the huge Prudhoe Bay oil field in Alaska to allow for repairs. The move would have reduced domestic oil production by 400,000 barrels a day, or 8 percent, and the announcement sent crude oil prices up by more than $1 a barrel, to $76.

A day later, however, BP said that initial inspections suggested that corrosion was not as widespread as it had feared, and that it might be able to keep part of the field operational as it fixed the problem.

The uncertainty surrounding Prudhoe Bay -- BP said production had fallen to 120,000 barrels a day, from 400,000 -- led ConocoPhillips, one of the three big owners, to tell some customers it could not guarantee supplies. The other big owners, BP and Exxon Mobil, have not yet warned their customers.

The problem may rekindle the debate about whether to drill in the Arctic National Wildlife Refuge. The House approved drilling in May, but the Senate did not.

POLICE BLOTTER -- Federal authorities arrested two more executives in their investigation of backdated stock options and said they were searching for a third, who might have fled the country after wiring more than $50 million overseas.

David Kreinberg, the former finance chief of Comverse Technology, a software maker in New York, and William F. Sorin, the former general counsel, were arraigned in Federal District Court in Brooklyn on charges of mail, securities and wire fraud. Jacob Alexander, the former chief executive, is thought to have fled the country.

By retroactively granting themselves the option to buy Comverse's stock right before it rallied, the men essentially stole from other shareholders and inflated the company's apparent profit, prosecutors said.

Federal prosecutors filed similar charges against Gregory L. Reyes, former chief executive of Brocade Communications Systems, and Stephanie Jensen, former vice president for human resources, last month. A federal magistrate in San Francisco last week denied a motion to dismiss the case.

A growing number of companies, including Pixar Animation, Juniper Networks and Sepracor, have said they plan to restate earnings because of questions about the timing of stock option grants, though none of their executives have been charged criminally over the practice.

Cablevision, a cable television company in Bethpage, N.Y., may have to restate its financial results from 1997 through 2002 because of suspect stock option grants.

CLOSING THE BOOK -- Martha Stewart, who spent five months in federal prison after being convicted in 2004 of lying to investigators reviewing possible insider trading in a pharmaceutical stock, agreed to pay $195,000 to settle a civil lawsuit that securities regulators filed in the case.

In addition to paying the fine, Ms. Stewart agreed not to serve as a chief executive or director of any public company -- including the one she founded, Martha Stewart Living Omnimedia -- for five years. She neither admitted nor denied wrongdoing.

Her former stockbroker, Peter E. Bacanovic, was included in the settlement. He will pay $75,645. Federal prosecutors say they used inside information from a mutual friend, Samuel D. Waksal, to help her avoid losing $45,000 on her investment in Mr. Waksal's company, ImClone.

The settlement will also prohibit Ms. Stewart from commenting publicly about her company's financial prospects.

GOOD AND BAD -- Strong growth in revenues is narrowing the federal budget gap, the Treasury Department said. The federal deficit totaled $239.7 billion through the first 10 months of the budget year, 21 percent below the deficit at the same point last year.

The trade deficit also narrowed, although only slightly, to $64.8 billion in June from $65.0 billion in May, the Commerce Department said. Still, it was the fifth-highest monthly trade gap on record, as the country imported a record $20.5 billion worth of crude oil. (May's was the third-highest on record.)

Jobless claims grew faster than expected and builders gave further evidence that the housing market was slowing. Toll Brothers, the country's largest builder of luxury homes, said orders for homes fell 45 percent in its most recent quarter.

On Wednesday, the government will release statistics on the number of building permits issued and the number of new houses built last month.

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Photo: Uncertainty over whether the large Prudhoe Bay oil field in Alaska would be shut for repairs led ConocoPhillips to tell some customers that it could not guarantee supplies. (Photo by BP, via Getty Images)